We take hundreds, and sometimes thousands of inquiries from prospective Residents each month. Inevitably, a few of these prospects tell us they must move because their current Landlord is facing foreclosure.
Our team will not give legal advice, simply because we’re not attorneys. However, most people (Residents, Realtors and even Investors) do not realize that Residents have powerful rights during the foreclosure process, so long as a legitimate lease is in effect.
Understanding Foreclosure in Indiana
Foreclosure is a legal process where a lender seeks to recover the balance of a loan from a borrower who has defaulted on their mortgage payments. When a landlord can no longer meet their financial obligations, their property may be subject to foreclosure, even if it’s currently being rented out.
In Indiana, the foreclosure process can take several months, from the initial notice to the final sale. During this time, both the landlord and the Resident have certain rights and responsibilities.
Key Steps in the Foreclosure Process:
Notice of Default: The foreclosure process begins when the lender issues a notice of default to the landlord. At this stage, the landlord is behind on payments but still retains ownership of the property.
Lis Pendens Filing: A “lis pendens” (lawsuit pending) notice is filed, alerting the public and Residents that foreclosure proceedings are in motion.
Foreclosure Sale: If the landlord is unable to resolve the default, the property may be sold at a sheriff’s auction. This typically happens after a court approves the foreclosure.
Transfer of Ownership: Once the foreclosure sale is complete, the new owner—often the bank or an investor—takes possession of the property.
What Happens to Residents in a Foreclosed Property?
If you are a Resident living in a property that is going through foreclosure in Indiana, the good news is that you have rights. Below are key points to be aware of:
1. Federal Protection Under the Protecting Tenants at Foreclosure Act (PTFA)
The Protecting Tenants at Foreclosure Act (PTFA), which was reinstated in 2018, offers significant protections for Residents in foreclosure situations. Under the PTFA, Residents with a valid lease are allowed to stay in the property until the end of their lease term, unless the new owner intends to occupy the home as their primary residence. Even in that case, Residents are entitled to at least 90 days’ notice before being required to vacate.
2. Month-to-Month Tenancies
If you’re renting on a month-to-month basis, the new owner must provide you with a 90-day notice before you are required to leave the property. This applies even if the foreclosure has been completed and ownership has changed hands.
3. Section 8 Residents
If you’re a Resident who receives assistance through Section 8, your rights are even more protected. The new owner is required to honor your lease and the housing assistance payments made by the government, even after the foreclosure sale.
Landlord Responsibilities During Foreclosure
Even after receiving a notice of default, landlords in Indiana are still legally responsible for maintaining the property and honoring the terms of the rental agreement until the property is sold or transferred. They must:
1. Maintain the property: Ensure that the property remains habitable and that necessary repairs are made.
2. Return security deposits: In Indiana, if a Resident moves out before the foreclosure is completed, the landlord is still responsible for returning any security deposits, minus any deductions for damages.
What Should Residents Do During a Foreclosure?
If you’re a Resident living in a property undergoing foreclosure, there are steps you can take to protect yourself:
1. Keep paying rent: Even though the property is in foreclosure, you’re still legally obligated to pay rent to the landlord until ownership is officially transferred. Make sure to keep records of all payments made.
2. Communicate with the new owner: Once the property is sold, the new owner or bank will likely contact you. They should notify you of any changes to the lease or rent payment arrangements.
3. Review your lease: Check the terms of your lease to understand your rights and obligations. If you’re unsure about your legal standing, consult an attorney who specializes in landlord-Resident law.
4. Be prepared: If the new owner plans to occupy the property or does not wish to keep you as a Resident, they must provide at least 90 days’ notice. Use this time to make arrangements for new housing if necessary.
Final Thoughts: Protecting Residents' Rights During Foreclosure
Foreclosures are never an easy situation, but Residents in Indiana are afforded specific protections under federal and state law. If you are a landlord facing financial challenges or a Resident living in a foreclosed property, understanding the legal process and taking proactive steps can help ease the transition.
